Taxpayers registered under the regular scheme can claim the input tax credit on purchases and utilize them towards payment of output tax on sales. The Input Tax credit is deducted from the Output Tax Liability and the Net tax is paid to the government. The process of claiming and utilising tax credit comprises of filing the monthly GST Return i.e. GSTR-3B.
Steps to Claim Input Tax Credit
1. Prepare, Review and Submit GSTR-3B
GSTR-3B is the monthly return with a summary of sales and purchases made during the return period.
a. Prepare – Enter the data of sales, output GST, purchases and input GST
b. Review – Review the calculations of Output GST against Input GST
c. Submit – Submit the data on the GST Portal
2. E-Credit Ledger updated
Once the return is submitted, the amount of input tax credit from the purchases of the current month gets populated in the E-Credit Ledger
How to Utilise Input Tax Credit?
- Calculate Output Tax and Input Tax
After submitting the return, the next step is to pay off the tax liability of the current month. The calculations are populated in the taxpayer’s account on the GST Portal.
1. Output Tax Liability – The output GST payable on sales i.e. IGST, CGST, SGST, UTGST or Cess is calculated based on the sales data entered
2. Input Tax Credit
E-Credit Ledger – The screen displays the balance of input IGST, CGST, SGST, UTGST or Cess. It includes the input tax credit of purchases from the current month and input tax credit brought forward from earlier tax periods
E-Cash Ledger – The screen displays the balance of cash deposited by payment of challan
- Apply rules for utilisation of Input Tax Credit
1. IGST – Use ITC of IGST in the sequence of paying output IGST, output CGST and output SGST
2. CGST – Use ITC of CGST in the sequence of paying output CGST and output IGST
3. SGST – Use ITC of SGST in the sequence of paying output SGST and output IGST
4. The ITC of CGST and ITC of SGST cannot be cross-utilised
- File Return and Carry forward Input Tax Credit
After utilising the ITC, make payment of tax through a challan. The system would carry forward the remaining unutilised balance of ITC and use it for payment of taxes in returns of subsequent periods.
Taxpayers registered under the regular scheme can claim the input tax credit on purchases and utilize them towards payment of output tax on sales. The Input Tax credit is deducted from the Output Tax Liability and the Net tax is paid to the government.
To claim ITC following documents are required:
1. Invoice issued by the supplier of goods/services
2. The debit note issued by the supplier to the recipient (if any)
3. Bill of entry
4. An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law.
5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under GST.
6. A bill of supply issued by the supplier of goods and services or both
ITC is available for all capital goods under GST.
However, ITC is not available for:
1. Capital Goods used exclusively for making exempted goods
2. Capital Goods used exclusively for non-business purposes
No ITC will be allowed if depreciation has been claimed on the tax component of any capital goods.